NASD, NYSE Say They Will Merge Their Regulatory Bodies
Wednesday, November 29, 2006
The NASD and NYSE Group yesterday said they plan to merge their regulatory operations in a move designed to reduce costly duplications.
The proposed merger comes after years of lobbying by Wall Street firms who have complained that the existing system is inconsistent and inefficient.
Mary L. Schapiro, NASD chairman and chief executive, said that NASD and NYSE have tried hard to coordinate their work despite the "two rule books" with sometimes conflicting elements. But, she said, there were limits to such efforts.
"When the new organization is in place and fully integrated, there will be one set of rules, one set of examiners and one enforcement staff," Schapiro, who would head the combined organization under the proposed merger, said in a statement: "Duplicative and inconsistent regulation and overlapping jurisdiction will become a thing of the past."
Under the self-regulatory system in place in the United States for decades, the Securities and Exchange Commission has delegated much of the responsibility for monitoring the behavior of firms that operate on U.S. exchanges. The NASD once was part of the organization that now runs the Nasdaq Stock Market, and NYSE handles regulation for the New York Stock Exchange. Each developed its own set of rules.
The NYSE is shedding much of its regulatory duties at a time when it is trying to expand revenue and profits. Earlier this year, the NYSE became a publicly traded company, and it is planning to take over Euronext, a European exchange.
The SEC must approve the proposed merger between NYSE and NASD. SEC Chairman Christopher Cox yesterday characterized the move to a single regulatory body as a "definitive first step toward a historic change that will simplify and strengthen the current self-regulatory structure in the United States."
NYSE Regulation's chief executive, Richard G. Ketchum, a former colleague of Schapiro's at the SEC, also characterized the proposed merger as the "first major reform" after more than 70 years of the creation of the self-regulatory system. Ketchum, who was also president of NASD and Nasdaq several years ago, would become the new entity's non-executive chairman during a three-year transition period.
Schapiro said the merger would not result in less oversight. "There are still many eyes" watching the securities industry, such as the SEC and the 50 states.
Charles Elson, chairman of the John L. Weinberg Center for Corporate Governance at the University of Delaware, welcomed the move. "You want the regulation of the exchanges to be a non-competitive issue," he said.
Barbara Roper of the Consumer Federation of America said that she did not object to the merger, although she did not think the cost savings would be passed on to investors. "For investors, I think it's a neutral thing," she said.
Under the plan, a 23-person Board of Governors will oversee the entity during the transition period, with 11 seats coming from outside of the securities industry.
Under the proposal, each NASD member firm would receive a payment of $35,000 for the anticipated cost savings. Annual fees would also be reduced by $1,200 each year for five years.
Schapiro said there would be no layoffs among the 2,400 employees of NASD and the 470-member staff of the NYSE Regulation, although there could be future cuts through attrition.